The death of Susan Crosland, widow of Labour politician Tony Crosland, has stirred a few memories. Crosland, celebrated author of The Future of Socialism and The Conservative Enemy, always wanted to be chancellor – a post held by his mentor Hugh Dalton and his friend Hugh Gaitskell – but had to be content with other offices, peaking with the post of foreign secretary in 1976-77. Denis Healey, who had wanted to be foreign secretary, never made it, but pipped Crosland at the Treasury post. Such is political life.

Memories of Gaitskell's brief chancellorship of 1950-51, and his period as shadow chancellor in 1951-55, may not be irrelevant to what is going on today. The Economist invented a composite character called "Mr Butskell", and an approach to economic policy known as "Butskellism", to characterise the putative consensus about economic and budgetary policy under Gaitskell and "Rab" Butler , who was Conservative chancellor from 1951 to 1955, while Gaitskell was his opposite number. However, as Gaitskell's diaries, and his biographers Philip Williams and Brian Brivati make clear, the consensus has acquired a mythical quality over the years, and was a consensus only up to a point.

The myth was fostered by their close family links. Butler's parliamentary private secretary, Sir Hubert Ashton, was married to Gaitskell's sister Bunty. They all got on well, and Sir Hubert – a legendary cricketing figure – was go-between for chancellor and shadow. One cannot imagine a similar relationship between Osborne and Balls today, although you never know.

The "consensus" was essentially about a Keynesian approach to economic policy and to what we used to call "the budget judgment" – how much to stimulate or discourage the economic and industrial scene, depending on the conflicting claims of growth, employment, inflation and balance of payments. The lessons of the interwar years had been learned: neither Tories nor Labour wanted to be associated with mass unemployment, deprivation and sheer waste of material and human resources.

But there was less of a consensus about how to distribute the spoils of growth, or to share the pain if pain were required. A list of the criticisms Gaitskell had of the Churchill/Butler government in 1952 must surely strike a chord today: "1. Breach of [electoral] promise. 2. Pandering to vested interests. 3. Reactionary social policy. 4. Gross incompetence and muddle."

Plus ça change. The Tories in January 1952 were, like Osborne now, exaggerating the sense of crisis for political reasons. Brivati notes how Gaitskell warned: "We must be on our guard against 'crisis' talk as an excuse to set back the clock of social progress." Williams remarks: "From the start Gaitskell thought Butler too responsive to the restrictionist bankers."

Gaitskell came into his own with his attack on Butler's 1952 budget, demonstrating that the combination of tax cuts and lower food subsidies would prove a net benefit to the well-off but hit the majority of low earners.

All of which is a fitting introduction to a lecture last week hosted by Politeia, a London thinktank that describes itself as "a forum for social and economic thinking". It is no secret that the kind of social and economic thinking favoured by Politeia is to the right of centre, so your correspondent was intrigued to be invited to a talk entitled "How to Cut Public Spending". This was undoubtedly a visit to the lions' den. Further interest was promised by the name of the speaker, my old friend John McFall, who was chairman of the Treasury select committee (2001-2010) and is now in the House of Lords, as Lord McFall of Alcluith. "Can it really be," I asked myself on the way across St James's Park, "that John McFall has signed up to the coalition?"

I need not have worried. Lord McFall did not pay too much attention to the title and delivered a tour de force on the social and economic dangers attached to doctrinally motivated cuts in public spending. Gaitskell and Ed Balls would have been proud.

Let us be perfectly frank. He was not against spending cuts when necessary. But were they necessary? He reminded his audience that Britain entered the financial crisis with net public debt at the (historically) remarkably low level below 36% of GDP in 2007 and that, even now, at 58%, it is well below the levels of over 100% seen during the industrial revolution. In the golden 1950s days of Butskellism, the figure was nearly 250%.

"While there is no emergency on the public finances, there is a crisis in private finance in the UK," he said, pointing out how household debt had risen from 50% of GDP in 1987 to over 100% now, with the debt of financial companies having risen from less than 100% of GDP in 1987 to over 250%.

We are now experiencing the phenomenon of "deleveraging", or the running-down of private debt. The rise in public sector debt is the natural concomitant of this. McFall said the real threat was to the social fabric – to people and communities – of an aggressive deficit-reduction programme. Rendering young people unemployed now, with all the well-researched long-term consequences that brings, would damage, rather than boost, tax revenues.

As Keynes said: "Take care of employment and the budget will take care of itself."